UBS has launched a number of initiatives to mobilise capital, including private wealth, towards the United Nations Sustainable Development Goals, which follow the launch, in the last quarter of 2017, of a series of investment products aligned to the 17 UN sustainable development goals, which allocate a pre-defined portion of proceeds as philanthropic contributions to its dedicated philanthropic UBS Optimus Foundation. These include the first 100% sustainable cross-asset portfolios for private clients, targeting market rates of risk-adjusted return as well as positive social and environmental outcomes, and a partnership with Solactive and other green bond managers on new indices featuring World Bank, multilateral development bank and green bonds.

SRP spoke to Simon Smiles, chief investment officer for ultra high net worth at UBS Wealth Management, about how to offer a more explicit sustainability focus via the World Bank's 'highly-rated debt' and how structured products could capitalise on increasing demand as the bank concentrates on new sustainable development goal-related financial instruments, across all asset classes.

The focus is on fixed-income benchmarks and indices that make sense to fund managers, according to Smiles. "The primary goal is not to develop indices to be used in structured products, but to increase the allocation of asset owners into these benchmarks," said Smiles. "However, because the indices will be used in funds, they will become more liquid and investable for a wider investor base. Over time, this should also allow for the development of other investment products such as delta one and other structured products."

UBS has seen strong client interest in a sustainable and impact investments, ranging from cross-asset portfolios to liquid single asset class solutions, private market vehicles and early-stage venture capital, according to Smiles.

The exclusive partnership with the World Bank will aim at increasing allocation to its debt instruments, which sits alongside its suite of equity index-linked 'green bonds', while the partnership with Solactive is on developing a suite of indices featuring multilateral development bank debt, as well as green bonds, to enable asset allocation based on financial return, risk and sustainability.

These standards can pave the way for more institutional investors to invest in highly-rated sustainable debt, doing good for society while satisfying fiduciary obligations, according to Smiles. "There is strong private investor demand for cross-asset solutions around sustainable investing," said Smiles. "Sustainable investing is no longer about applying screens at the top of a portfolio in order to exclude companies, but follows a more holistic approach. We see demand not only from millennials, but also from family offices, and we have actively worked to respond to their demand."

Investors in multilateral development bank bonds are facing a tracking error versus traditional benchmarks, and the partnership is intended to establish a "credible benchmark index for institutional managers to solve this issue", according to Smiles. "We are working with our partners to develop pooled multilateral development bank bond benchmarks that are very similar to high grade bond indices, as well as 1- to 5- and 5- to 10-year duration benchmarks specifically for World Bank debt instruments," said Smiles.

Despite most of the attention from sustainable investors on equities, with hundreds of sustainable investing equity benchmarks, UBS wants to fill a gap, according to Smiles. "We hope the new multilateral development bank benchmarks that are being developed can provide compelling alternatives in high grade, allowing for a specific allocation to multilateral development bank debt more broadly," said Smiles. "This should result in better funding for multilateral development banks, while also delivering better risk adjusted returns for investors."

UBS launched its first sustainable index-linked notes two years ago when it licensed the Dow Jones Sustainability Europe Diversified High Beta High Dividend Index, an index tracking high income liquid stocks with high historical beta within the Dow Jones Sustainability Europe Diversified Index, to develop a range of investment products. The bank released a white paper with a summary of its sustainability initiaitives during the World Economic Forum Annual Meeting in Davos.

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